• George Osborne’s Non-Event

    George Osborne’s budget was driven by an obvious political imperative but was, in economic terms, largely a non-event. The major interest, such as it was, lay in the minor adjustments offered to long-suffering consumers in the forlorn hope that they would be cheered up by cheaper beer and marginal concessions on income tax, and might not therefore notice that their jobs, services and living standards are still under constant threat.

    In terms of the wider economy, the Chancellor’s stance was “steady as he goes”; after nearly three years of his stewardship and in the sixth year of recession, nothing much, it seems, needed to change.

    There was no recognition that austerity as a response to recession had not only been invalidated by experience, both in the UK and in Europe, but had also, as a consequence, been rejected – following a review of their earlier recommendations – by the IMF. The Chancellor was apparently unconcerned that output still lagged behind its pre-recession peak, and that the government borrowing, whose reduction he had identified as one of his primary goals, had continued – reflecting the depressed level of economic activity – to grow as a percentage of GDP.

    So little account was taken of the most obvious and pressing problems facing the economy that one must wonder whether the Chancellor’s focus is political and social, rather than economic. It may well be that his unstated agenda is to take advantage of the recession to unleash forces and drive through measures that will change the balance of advantage between rich and poor, private business and the public sector, for a generation.

    The Chancellor may well be, in other words, an (perhaps – if one is being generous) unwitting heir to a long and dishonourable tradition, epitomised by Andrew Mellon, the multimillionaire US Treasury Secretary, who called upon employers in the depths of the Great Depression to “liquidate labour”.

    Austerity, and the withdrawal of government, represent, after all, increased space for private enterprise (though the Chancellor seems not to have noticed that manufacturing is so enfeebled that it is unable to take advantage of any supposed opportunities); and even the resulting failure to get the economy moving has a silver lining, in that it guarantees that unemployment remains an actual and potential restraint on wage growth.

    What was needed from the Chancellor in his Budget speech was so far removed from what was in his mind that there seems scarcely any point in rehearsing it. But the Budget speech would have made a positive difference if it had signalled the abandonment of austerity and its replacement by a strategy to recruit government, banking and industry in a joint effort to raise the level of demand, to provide finance for productive investment, to coordinate an industrial strategy focusing on those areas of manufacturing that represent the best possibilities for growth, and to frame a macro-economic policy with competitiveness rather than inflation control at its heart.

    Bryan Gould

    31 March 2013

    This article was written for Palgrave Macmillan’s newsletter.